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[2013] ZALAC 19
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Astrapak Manufacturing Holdings (Pty) Ltd t/a East Rand Plastics v Chemical Energy, Paper, Printing, and Allied Workers Union (JA 40/2012) [2013] ZALAC 19; (2014) 35 ILJ 140 (LAC); [2013] 12 BLLR 1194 (LAC) (22 August 2013)
REPUBLIC OF SOUTH AFRICA
THE LABOUR APPEALCOURT
OF SOUTH AFRICA, JOHANNESBURG
Reportable
Case no: JA 40/2012
In the matter between:
ASTRAPAK MANUFACTURING HOLDINGS
(Pty) Ltd t/a EAST RAND PLASTICS
.......................................................................
Appellant
and
CHEMICAL, ENERGY, PAPER, PRINTING,
WOOD AND ALLIED WORKERS UNION
............................................................
Respondent
Heard: 17 May 2013
Delivered: 22 August 2013
Summary:
Dismissal for
operational requirements – application of s 41(4) of the BCEA-
employer offering alternatives to retrenchment
to some employees with
increased salaries - employees rejecting offer to claim severance
pay- Labour Court ordering employer to
pay severance pay to
employees- held that an employee, who rejects an employer’s
offer of reasonable employment for no sound
reason cannot then claim
severance pay- respondent’s members who were offered an
increased package acted unreasonably by
refusing to accept this offer
–s 41(4) of the BCEA principles relating thereto restated–
Appeal upheld- labour Court’s
judgment set aside and dismissal
of respondent’s members found to be substantively fair.
Coram: Tlaletsi ADJP, Davis JA and
Molemela AJA
JUDGMENT
DAVIS JA
Introduction
This is an appeal against the order
of the court
a quo,
in terms of which it held that the
dismissal of the respondent’s members based on operational
requirements was substantively
fair but that the appellant was to
pay the members of the respondent severance pay to be computed in
terms of s 41 of the Basic
Conditions of Employment Act 75 of 1977.
With the leave of the court
a quo,
the appellant has
approached this Court on appeal against this order of the court
a
quo.
The factual background
Respondent had referred a dispute to
the court
a quo
on behalf of its members who were retrenched
by the appellant on 21 June 2010. Although respondent’s
members were numbered
from 1 to 323, it appears, according to an
agreed minute from the parties that only 286 respondent’s
members formed part
of the dispute before the court
a quo
and
thus fall within the scope of this appeal.
Appellant and, in particular the
Astrapak Group, consisted of two divisions, each of which comprises
a number of companies. The
two divisions are known as the Rigids
division and the Flexibles division. The latter manufactures plastic
products that are
flexible, such as cling wrap and plastic bags,
while the former manufactures products such as plastic bottles.
Appellant in this
dispute fell within the Flexibles division.
It did not appear to be in dispute,
when the matter was argued before the court
a quo,
that the
Astrapak Group was faced with a situation where profits in the
Rigids division had increased by 31% during the period
2009 to 2010,
while profits in the Flexibles division had declined by 31% during
the same period. It was further not disputed
that those companies,
which fell within the Flexibles division, would have to close unless
a further investment was made in them,
which investment would have
to be funded by the shareholders. The shareholders were not prepared
to make the necessary investment
unless the companies in the group
were able to demonstrate that they could reduce costs and thus
increase profits. It appears
that the Flexibles division was
required to increase its profit margin from 7% to 12% in order to
convince shareholders that
a further investment in the companies
would be prudent, which investment in turn would secure the long
term survival of these
businesses. It was further common cause that
appellant indicated that it aimed to reduce costs by R106 million
which required
changes to wage structures and the reduction of
overtime.
The Regional Chief Executive Officer
of the Cape Region, Mr Keith Watkins told the court about the
deliberations which took place
on 24 February 2010 and which
provides insight into the strategy of appellant. A 10 point plan was
proposed which, according
to the testimony of Mr Watkins, related:
‘
To
the controls in the company and the fact that working capital was not
well controlled, the debtors were not well managed, the
company had
to much stock, and different companies were not utilising the
computer system effectively, and that is Sispro. Sispro
is the
manufacturing computer system which we used in the group, consists of
not only financial modules, but also integrates into
the production
modules, and stock modules so that if you can use capacity planning
and material requirements planning, a computerised
basis were
generating, your procurement needs over time, that is the first
point, working capital management to remain as part
of the ten point
plan, working capital management, you got the information from Sispro
about the levels, but the actual management
of working capital
required certain techniques and those techniques were to buy
materials on a short interval basis, so rather
than buy three months
with the material at one time, we would buy week by week, to share
materials between different companies
in the group, when one company
was overstocked, we would move to another company, in the debtor’s
front, we would deal with
the reasons for debtors not paying
immediately on the first day that the debt became overdue, rather
than allow it to drag out
for two or three months before we try to
address those issues and on the creditor’s side, which is the
other aspect of working
capital, we sought to negotiate, extend the
terms with our creditors so that we did not pay for the polymer and
the goods that
we bought as quickly as we had been. And the
combination of reducing the stock levels, and getting our debtors to
pay promptly
and getting the creditors to extend the terms, improved
the strain on working capital. And then Capex to be controlled at
Exco
level.’
The plan also envisaged the
implementation of a continuous shift system (a so called four shift
system) which was designed to increase
productivity and reduce costs.
Mr Watkins described this system thus:
‘
The
continuous shift system, it speaks here about the ongoing
implementation as I explained earlier, it was not a new initiative,
we had been implementing continuous production, going back some nine
years in the group. Certain companies moved more rapidly to
implement
than others, because there was consultative process taking place at
each company with a work force, and not the same
shift system went
into every company, there were different agreements which had
different companies around how continuous production
would be
implemented.’
Mr Pierre Wentzel, a senior employee
of appellant, testified that meetings were held with employees about
these planned strategies,
in particular that ‘the operating
methodology of the Group shall be changed to a, two by twelve hours
continuous shift
system, which was referred to by the parties as a
‘four shift system’. Mr Wentzel referred to a letter of
14 April
2010 which constituted a notification of possible
dismissals in terms of s 189 A of the LRA and which set out the
background
to the impasse.
‘
On
15 March 2010, as the Company (ERP was about to issue the first
invitation to engage CEPPWAWU at East Rand Plastics on the issues
of
the 4 - Shift System and related subjects, the Union issued a notice
to commence a secondary strike.
As
a result of such strike, the Company thought it best to hold back on
the proposed changes and first attempt to resolve the strike
issues.
As we were not able to resolve these within a reasonable time period,
the Company is in a position where we have to start
with this process
now, allowing the parties sufficient time for consultation before
final decision have to be made.
As
the proposed changes within the Company may also affect the five and
three employees which formed the cornerstone of the current
strike
and also have a bearing on their income, we thought it wise to deal
with the abovementioned issues at this stage. We therefore
want to
avoid a piecemeal approach whereby these employees have to be
negotiated with, only to be included in a section 189 A process
immediately thereafter for the reasons mentioned in this letter in
support of the section 189 A process.
To
this end Management has decided to embark on a consultation process
with regards to the restructuring of the Company in order
to:
1.
comply with the Group initiative to change over to a 4-shift system;
2.
attempt to make up the loss of production and turnover it has
suffered and continues to suffer as a result of this strike;
3.
remove the cause of the strike;
4.
rationalize the conditions of service in the Company so as to bring
these in line with other Group Companies;
5.
reduce all unnecessary costs to raise profitability levels in order
to secure the return on investment for the Shareholders.
Collectively,
these actions would place the Company in a position where it could
ensure the sustainability of the Company.’
This letter had been necessary because
employees had continued to protest against the four shift system and
no consensus could be
reached.
The letter of 14 April 2010 issued in
terms of s 189 A and 189(3) of the Labour Relations Act 66 of 1995
(LRA) thus informed employees
of the possibility of retrenchment,
and invited them to engage in a process of consultation.
The reasons for the proposed
retrenchment, in the event of acceptable alternatives not being
found, were stated to be:
1. for appellant to comply with the
initiative to change from a three shift system to a two shift system;
2. for appellant to attempt to make up
the losses in production and turnover suffered and which it continued
to suffer as a result
of the strike, which had taken place in March
2010, and to reduce all unnecessary costs and raise profitability
levels in order
to secure a return on investment for shareholders and
thereby ensure the financial sustainability of appellant.
Three facilitated consultation
meetings then took place on 4 May 2010, 17 May 2010 and 28 May 2010
under the auspices of the CCMA.
On 28 May 2010, the third meeting
ended in disagreement between the parties with regard to the proposed
changes. Appellant sought
a further meeting on 8 June 2010 to provide
respondents with final opportunity to participate in the consultative
process. On 11
June 2010, letters were addressed to each individual
employee affected by the changes, providing these employees with
extensive
details on how the changes would affect them and with the
exception of five employees offering alternatives to their
retrenchment.
Some employees accepted the changes and alternative
positions were offered to them and they were therefore not retrenched
as consequence
thereof. Five employees were not offered alternative
employment as no suitable position was available. They were paid
severance
pay equal to one week’s remuneration per year of
completed service.
Judgment of the court
a quo
So much for the essential facts.
Mokoena AJ, after an evaluation of this evidence, held that the
appellant had experienced a loss
of profit, that the performance of
the Flexibles division had incurred serious losses as compared to
the Rigid division, that
the situation in the Flexibles division was
of such a nature that ultimately it would be forced to close down,
unless significant
changes were implemented. The learned judge also
accepted the evidence of appellant’s witnesses that the
shareholders of
appellant were unwilling to invest further funds in
the Flexibles division unless a cost cutting exercise could be
implemented
which would contribute to an increase in profits and,
that further, there was a financial justification to implement the
four
shift system.
On the basis of an evaluation of this
evidence, the learned judge concluded, on the probabilities, that
appellant had proved that
there was a clear reason for the
retrenchments that is there were substantive grounds upon which the
dismissals based on operational
requirements could be justified and
further, there was ‘indeed a commercial rational decision for
the respondent to invoke
the provisions of s 189 read with s 189 A’.
Turning to the question of
alternative employment which was offered by appellant, the court
a
quo
held that the evidence revealed that members of the
respondent had earned more money through the overtime system. Once
the four
shift system was implemented, the loss of overtime would
result in these members earning far less than previously had been
the
case.
On the basis of this evidence,
Mokoena AJ framed the key question for determination thus:
‘
Even
though they are not entitled as a matter of right to work overtime,
however, this is a factor which one would have to consider
in
assessing whether or not having worked overtime over a long period of
time and having planned and budgeted their lives on the
money
received for overtime, they acted unreasonably by not accepting the
alternative employment offered by the respondent.’
Mokoena AJ then found that, as
members of the respondent had acted upon the expertise and knowledge
of the respondent as a trade
union and as they would have been
significantly impoverished had they accepted alternative employment
offered by the appellant,
these members of respondent had not acted
unreasonably by not accepting alternative employment offers which
had been made to
them by the appellant. For this reason, he found
that the failure by the appellant to pay these members severance pay
was in
violation of s 41 of BCEA.
The appeal
When the matter was argued on appeal,
the factual basis required for determination of the appeal was the
following: In terms of
letters of 11 June 2010, save for the five
employees to which reference has already been made, the balance of
the employees were
offered alternatives to retrenchment. These
alternatives were essentially based on the four shift system which
abolished overtime.
Respondent contended that the affected employees
were justified in not accepting what was an unreasonable and unfair
set of conditions
which were to be imposed upon them by appellant,
pursuant to this new offer. Appellant contends, in terms of s 41(4)
of the BCEA,
that an employee, who unreasonably refused to accept
the employers offer of alternative employment with that employer or
any
other employer, is not entitled to severance pay in terms of s
41(2) of the BCEA and that the refusal in the present dispute was
sufficiently unreasonable to justify the application of s 41(4).
This Court has previously examined
the scope of s 41(2) read together s 41(4) of the BCEA in a
typically learned and comprehensive
judgment by Zondo JP (as he then
was) in
Irvin and Johnson Ltd v CCMA
(2006) 27 ILJ 935 (LAC).
Zondo JP sought to answer what he considered to be the fundamental
question that arises in the interpretation
of s 41(4) namely: ‘
What
is the mischief that s 41 (4) of the BCEA seeks to address or, put
differently, what is the purpose of s 41(4)?’
In
answering this question, Zondo JP found that, where an employer
arranged alternative employment for an employee and the employee
rejected the alternative employment for no sound reason, but simply
in order to take the severance pay, severance pay should
not be paid
to such employee. The justification for this conclusion was as
follows:
‘
The
purpose (of this section) was to discourage employees from
unreasonably rejecting offers of alternative employment arranged
by
their employers simply because they might prefer cash in their
pockets in the form of severance pay.’
(at para 41)
Zondo JP went on to say that the BCEA
had also sought to promote employment and therefore to incentivize
employers to take the necessary
steps to provide alternative
employment for all employees facing dismissal for operational
requirements.
In a further analysis of the scope of
the section, Zondo JP held that there was no basis by which an
employee could obtain both
severance pay and alternative employment.
There was however a case where the employee would get neither
severance pay nor alternative
employment:
‘
Where
he has himself to blame because he has acted unreasonably in refusing
the offer of alternative employment. When he refused
the offer of
alternative employment but cannot be said to have acted unreasonably
in doing so, he would still get his severance
pay.’
(at para 45)
In the present dispute, the essence
of appellant’s case is that 126 of the members of respondent
were offered either a higher
basic wage or the exact same basic wage
that they had earned immediately prior to the restructuring. In
addition, 86 of the members
had been offered the same basic wage
while the basic wages of another 34 respondents would have been cut
by between 1.19% and
3.65% with the majority suffering a reduction
of 2.96%.
Appellant further submitted that all
the respondent’s members would have to incur less travelling
expenses as they only
needed to travel to work three times per week
instead of seven times a week. There was no unsafe travelling at
night as their
shifts would have started or ended at 07h00 or 19h00
compared to the previous shift changes at 07h00, 15h00 and 23h00
daily.
Appellant further submitted that, although these employees
had lost payment for overtime, they had no right to overtime and
appellant
could not be compelled to provide respondent’s
members with overtime work. Furthermore, their bonuses, notice,
leave and
severance pay were calculated on actual shifts which
excluded overtime worked.
Appellant pressed the additional
point that 176 respondent’s members would be earning more than
what they would have earned
prior to the restructuring as from 1
July 2010 when a new wage structure came into effect in terms of a
new industrial agreement;
that is agreed in the Metal and
Engineering Industry Bargaining Council. Although the increased
wages would not be as high as
would have been the case for some of
them, had their wages not been changed, pursuant to the
restructuring all 176 would have
enjoyed a higher wage some nine
days after the restructuring took effect.
Ms Erasmus, who appeared for the
appellant, contended that there had been no response to appellant’s
offer of alternative
employment and the respondent had not taken the
view that the alternative employment offered by appellant was
unreasonable or
did not constitute alternative employment in either
its statement of case or in the pre-trial minute. Mr Van der Riet,
who appeared
on behalf of the respondent, contended that the
question of reasonableness depended upon the facts before the court
and thus
respondent’s approach to an alternative offer was not
relevant to the assessment required by the Court.
Assuming in favour of the
respondent’s members, and that their failure to raise
objections to the alternative offer was
not definitive of the
resolution of the dispute, the reasoning adopted in
Irvin and
Johnson Ltd,
supra
regarding s 41(4), as applied to the
present dispute, is dispositive: An employee, who rejects an
employer’s offer of reasonable
employment for no sound reason
cannot then claim severance pay. If an employer such as the
appellant offers an increased amount
or, at the very least, the same
amount, viewed within the context of the specific conditions of
employment that cannot on any
reasonable basis be taken as more
onerous than that which existed prior to the retrenchment exercise,
and if an employee refuses
to accept such an offer, that refusal is
then unreasonable. The purpose of the Act, as explained by Zondo JP
in
Irvin and Johnson Ltd,
supra,
namely to provide
employers with incentives to take steps to try to provide
alternative employment for employees facing dismissal
for
operational requirements, which, in turn, has been triggered by
parlous economic conditions facing the employer, would be
subverted,
where a Court finds that, notwithstanding an equivalent offer, at
the very least, an employer would be compelled to
pay severance
packages.
The implications for the present
dispute are therefore clear. Those respondent’s members who
were offered an increased package
or at least one approximately
similar acted unreasonably by refusing to accept this offer. In
these circumstances, s 41(4) of
the BCEA does apply. The evidence
regarding precisely what the effect on respondent’s wages was
hardly a model of clarity;
that this Court was uncertain as to the
precise effect on each member. Accordingly, this Court required the
parties to provide
wage schedules subsequent to the hearing in order
for a proper assessment to be made. Two schedules were then provided
to the
Court, namely a comparison of the initial wages versus the
wages offered at the end of the restructuring and a comparison of
the initial day wages as compared to wages which was offered after
the new industrial wage rates for the Metal and Engineering
Industry’s Bargaining Council for the period 1 July 2010 to 30
June 2011, came into operation. The announcement of this
increase
was made public in a circular on 09 June 2010. Accordingly, the
respondent would have certainly known of the new wage
rates before
the decision was taken to reject appellant’s wage proposals.
It is this particular knowledge that is critical
in this case. For
this reason, the wage rates, inclusive of the increases agreed by
the Bargaining Council must be taken as the
basis of comparison to
test the reasonableness of the decision of respondent’s
members to refuse appellant’s offer.
According to this particular
schedule, 173 of the respondent’s members were made an offer
which would have resulted in an
increase in their wages ranging from
63.84% to 1.10%. In my view, all of these respondents’ members
faced as they were
with an offer which ranged from extremely
advantageous to moderately positive, acted unreasonably in the
context of this retrenchment
exercise by refusing to accept these
offers.
By contrast, the balance of the
respondent’s members was confronted with decreased packages
ranging from approximately 1%
(in the case of two respondent’s
members) to significantly more than 30% in the case of six
respondent’s members.
Although it is difficult to demarcate
precisely when the offer can be refused by an employee without the
danger of s 41(4) of
the BCEA being invoked against him or her, in
my view, once an employee is faced with a wage decrease, it cannot
be said that
he or she should not have the choice of refusing the
offer and seeking employment elsewhere, notwithstanding the
extremely difficult
conditions which pertain to employment in
general within the South African economy.
To the extent that overtime payments
were invoked by the respondent’s members in support of their
case, had the appellant
decided to reduce or eradicate overtime,
respondent would not have been entitled to claim compensation for
the withdrawal or
discontinuation of this overtime; hence this
component must fall outside of the scope of the computation.
In the light thereof, the court
a
quo
erred in finding that severance pay should be paid to all of
the individual members of respondent who claimed severance pay in
circumstances where some would have enjoyed increases in their
wages, had they accepted the offer of employment made by the
appellant.
Accordingly ,the following order is
made:
1. The appeal is upheld.
2. The order of the court
a quo
is set aside and replaced with the following:
2.1. The dismissal of the applicant’s
members based on operational requirements is substantively fair;
2.2. The respondent is to pay the
members of the applicant save for those set out in a schedule
attached hereto severance pay to
be computed in terms of s 41 of the
BCEA;
2.3. Each party is to pay its own
costs.
____________
Davis JA
I agree
_____________
Tlaletsi ADJA
I agree
_______________
Molemela AJA
APPEARANCES:
FOR THE APPELLANT: Adv L Erasmus
Instructed by Du Randt Du Toit Pelser
Attorneys
FOR THE RESPONDENT: Adv Van der Riet S
C
Instructed by Cheadle Thompson &
Haysom Inc